To save costs on health care, employers have often looked to traditional cost-sharing ideas, such as asking employees to pay a greater share of their health plan’s premium. Recently, though, many employers have gone beyond this approach to consider strategies that have a measurable impact on reducing the cost of health care itself. They consider wellness programs that encourage healthy behavior or consumer-driven health plans that put employees in charge of spending their money.
Now, a relatively new idea is to include reference-based pricing (RBP) in your health plan. Essentially, this allows employers to determine a limit for pricey specialty drugs or procedures like elective surgery. Any amount due over the limit is the employee’s responsibility, meaning health plan members are incentivized to shop around for the best price. So how can you put this concept to work for your company?
New Anthem Study Shows Reference-Based Pricing Lowers Costs
RBP can help solve the problem of wide variation in costs of many different medical procedures — from MRIs to major surgeries. Anthem Blue Cross California recently completed a study on reference-based pricing with the California Public Employees’ Retirement System (CalPERS), in which we looked at costs for hip and knee replacement surgeries. Anthem Blue Cross set the insurance reimbursement ceiling at $30,000, which was the midpoint for what different facilities charged for these procedures.
The results were remarkable: Total costs for participants in the RBP program dropped by 19 percent, and the facilities that were designated by the RBP program demonstrated equal or better quality. Essentially, participants in the program received less expensive procedures with no loss of quality. The employer can benefit financially, too: CalPERS saved $5.5 million over two years with a reference-based pricing pilot, according to an article from California Healthline.
But What About the Patient Experience?
The big concern about reference-based pricing is the potential backlash from patients who are seeking care. It’s critical to allow patients a range of possible providers — and by setting the reimbursement threshold at the midpoint, patients in the study had options. Other RBP studies have not been able to measure patient satisfaction with the RBP experience versus a control group, so that was an important point for our research.
In addition to lowering costs for total joint replacements, the RBP program in the CalPERS study showed no increase in complications or hospital admissions following surgery. In addition, according to a study conducted by HealthCore, a health outcome research subsidiary of Anthem1, there was a marked difference in patient satisfaction with both benefit notification and coverage, as seen in this chart:
With the RBP cohort reporting better overall satisfaction with the benefits experience, it’s clear that reference-based pricing does not necessarily turn off plan members.
Is Reference-Based Pricing Right for Your Company?
A 2014 survey from Aon Hewitt, as reported by SHRM, showed that 68 percent of employers were considering reference-based pricing, with 10 percent having already adopted it. It’s a cost-saving option that helps companies and their employees think differently about their approach to medical care.
To make reference-based pricing work at an organization, explaining the concept to employees is crucial. Transparency is important, and plans that illustrate price variations will help members make more informed decisions. Communication to employees is also key: In the study with CalPERS, Anthem used several communication methods to educate employees about medical providers that provide more value. Annual notifications to members, the Anthem website and preauthorization letters all helped in communication.
It’s also important to know the Affordable Care Act’s guidance on RBP. The government has issued an FAQ to make sure the use of RBP in a health plan is “reasonable.” There are specifics on the type of service, quality standards, the exceptions process and disclosures that employers and their health plan vendor should keep in mind, as noted by Mercer.
Lastly, reference-based pricing is not just about saving costs, it’s about ensuring quality and helping to make the overall health care industry more competitive. Employers serious about implementing RBP should talk to their broker or health insurance partner and see what options are available with their plan. If you move forward with RBP, you’ll be at the forefront of helping to remake health care in America.
1The results were presented at a scientific conference: Wu S, A. R. DeVries, W. Chi, R. Sun, R. Honaker. “Re-evaluating Reference-Based Pricing (RBP) for Pharmaceuticals — Lessons Learned From RBP for Total Joint Replacement.” Academy of Managed Care Pharmacy (AMCP) Nexus, September 2014.
Andrew Reinbold has been engaged with the health care marketing and communication space for over five years. He currently focuses on business-to-business content for Anthem, Inc. that is relevant to employers and brokers as they navigate the changing health care environment.